Pentagon fears healthcare costs will erode readiness

Aging population is driving up fees

By Laura M. Colarusso and Bryan Bender, Globe Staff | March 5, 2007

WASHINGTON -- Like the many major corporations that insist their competitiveness is undermined by rising medical bills, the Pentagon is warning that mounting healthcare costs could jeopardize the military's ability to wage war.

Because of an aging population and skyrocketing medical fees, the annual cost of military healthcare has more than doubled from $19 billion to $39 billion since 2001, according to Defense Department data. That number is expected to climb to $64 billion by 2015, Pentagon officials estimate, consuming roughly 12 percent of the defense budget.

The military health plan, known as Tricare, covers approximately 9 million people, including active-duty troops, veterans, and family members. It was expanded in 2001 to allow retirees over 65 and their spouses to tap into the Pentagon's medical coverage. The new plan, called Tricare for Life, is a free supplement that covers any charges not paid for by Medicare.

At the same time, annual premiums for younger Tricare consumers have not changed for more than a decade, even as medical costs have steadily ballooned. Defense officials attempted last year to raise these fees, which range from $150 to $460, but faced stiff resistance from a Congress unwilling to take on veterans' groups.

Still, many specialists note that the cost growth is coming not from injuries on the battlefield -- because most beneficiaries never came close to combat -- or from problems at military hospitals or the Veterans Administration.

The biggest increases are from the same basic-care expenses that have weakened General Motors and other corporations that have agreed to cover large numbers of retirees. And the Pentagon's plan is far more generous than most.

"It's been one of the biggest areas of growth [in the military budget] in recent years," said Steven Kosiak , vice president of budget studies at the Center for Strategic and Budgetary Assessments, a nonpartisan think tank in Washington. " Most developed countries . . . probably don't spend as much on their militaries as we spend on military healthcare."

Kosiak and other independent defense analysts say the growing price tag underscores a larger financial problem confronting the Defense Department. As costs for everything from healthcare to aircraft continue to rise at rates far greater than inflation, the Pentagon's budget is not keeping up.

"The problem that they have is that, over time, it's not clear that the total defense budget is going to increase at a rate that's sufficient to absorb these healthcare costs," said Susan Hosek, a senior economist at the Rand Corporation , a nonprofit research organization. "So the concern is that over time they're going to have to shift their resources from military personnel or equipment to pay for healthcare costs."

The Pentagon has seen temporary relief from Navy and Air Force personnel cuts, which have lessened the demand on the healthcare system. The two services plan to eliminate more than 100,000 jobs in the hope of saving billions in pay and benefits over the next several years.

In 2008, for example, the Navy and Air Force together will slash manpower by roughly 15,000. Pentagon officials estimate those reductions will save the health system $138 million per year.

"If we weren't at war now, I think the path would be that the services would all start cutting their force structure a bit in order to help reduce the number of people they have and save money that way," Kosiak said.

Instead, the opposite is happening. President Bush has proposed that the Army and Marine Corps add a total of 92,000 troops over the next five years, which would mostly offset the savings achieved by the Navy and Air Force cuts.

Meanwhile, unlike the private sector, which has shifted more of the burden to employees, Congress seems unwilling to allow the Pentagon to raise premiums on military health plans.

"The Pentagon has tried before to raise the cost of healthcare for our servicemen and women, and Congress has soundly rejected it," said Senator Edward M. Kennedy, Democrat of Massachusetts and a member of the Senate Armed Services Committee. "Our forces have dedicated their lives to our country, and we shouldn't ask them to pay more."

That means the Pentagon must find other ways to pay for healthcare, such as cutting personnel, said Christopher Hellman , defense policy analyst for the Center for Arms Control and Non-Proliferation, another Washington think tank.

"You can't really go back and reduce benefits," Hellman said. "That's never worked. You have to go back and reduce the number of people."